Two banks in region to merge amid woes

PacWest will combine with smaller rival Banc of California as it seeks to weather the industry upheaval.

PacWest Bancorp is merging with smaller rival Banc of California as it seeks to navigate a bout of upheaval that brought down a handful of its peers.

The banks said in a statement that Centerbridge Partners and Warburg Pincus will invest $400 million as part of the deal to obtain about 20% of the combined company and warrants to buy more shares. PacWest stockholders will get 0.66 of a share of Banc of California common stock for each of their shares. The banks will sell assets with the aim of repaying $13 billion of wholesale borrowings, the companies said Tuesday.

Shares of Banc of California surged as much as 22% after the Wall Street Journal reported that the pair were in talks. PacWest shares closed down 27%.

The merger is aimed at shoring up confidence in U.S. regional banks after a run on deposits struck several lenders this year, leading to the collapse of three California-based banks and one in New York. Rising interest rates depressed the value of bonds they bought when rates were low, and the sudden surges in withdrawals forced some of them to sell those assets at a loss.

The combined bank will have about $36 billion of assets, less than what PacWest alone had at the end of March. The firms will carry the Banc of California name, and that firm’s chief executive, Jared Wolff, will lead management. The deal is expected to close late this year or early in 2024.

“This transformational merger will create a robust, well-capitalized and highly liquid institution poised to deliver exceptional service to even more California businesses and communities,” Wolff said. “We believe both Banc of California and PacWest stockholders will benefit from the compelling economics of the combined company.”

PacWest, a Beverly Hillsbased regional bank, has been shedding assets to improve liquidity. In May, the bank said it was weighing strategic options and had been approached by potential investors. Shortly after that, it sold a pile of real estate loans to Kennedy Wilson Holdings Inc., an assetbacked loan portfolio to Ares Management Corp. and tapped an Apollo Global Management unit for a financing facility.

Santa Ana-based Banc of California, the legal acquirer, had $10 billion of assets at the end of March, making it less than a quarter of the size of PacWest. But it saw relatively small deposit outflows in the first quarter, and its 17% stock drop this year through Monday was mild compared with PacWest’s decline of 54%.

After the deal closes, the combined company will have $25.3 billion in total loans, $30.5 billion in total deposits and more than 70 branches in California, the statement said.

PacWest ranks outside the 25 biggest U.S. banks. Established in 1999, PacWest focused on small, middlemarket and venture-backed businesses. The bank had 2,438 employees at the end of 2022, regulatory filings show.

Chief Executive Paul Taylor tried to reassure investors about PacWest’s stability, with the bank saying in March that it had taken steps to get rid of noncore products and boost earnings, which led deposits to stabilize.

PacWest’s total deposits stood at $27.8 billion as of Friday, the company said.